Loans | Note 4 – Loans The composition of the loan portfolio at the dates indicated, excluding loans held-for-sale, was as follows (in thousands): September 30, 2017 December 31, 2016 Real estate loans: One- to four- family $ 156,871 $ 152,386 Home equity 29,129 27,771 Commercial and multifamily 201,411 181,004 Construction and land 54,921 70,915 Total real estate loans $ 442,332 $ 432,076 Consumer loans: Manufactured homes 16,864 15,494 Floating homes 26,699 23,996 Other consumer 5,032 3,932 Total consumer loans 48,595 43,422 Commercial business loans 39,158 26,331 Total loans 530,085 501,829 Deferred fees (1,877 ) (1,828 ) Total loans, gross 528,208 500,001 Allowance for loan losses (4,991 ) (4,822 ) Total loans, net $ 523,217 $ 495,179 The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2017 (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Floating homes Other consumer Commercial business Unallocated Total Allowance for loan losses: Individually evaluated for impairment $ 377 $ 168 $ - $ 32 $ 70 $ - $ 57 $ 276 $ - $ 980 Collectively evaluated for impairment 874 183 1,185 327 110 154 41 231 906 4,011 Ending balance $ 1,251 $ 351 $ 1,185 $ 359 $ 180 $ 154 $ 98 $ 507 $ 906 $ 4,991 Loans receivable: Individually evaluated for impairment $ 6,664 $ 1,007 $ 1,717 $ 99 $ 309 $ - $ 57 $ 357 $ - $ 10,210 Collectively evaluated for impairment 150,207 28,122 199,694 54,822 16,555 26,699 4,975 38,801 - 519,875 Ending balance $ 156,871 $ 29,129 $ 201,411 $ 54,921 $ 16,864 $ 26,699 $ 5,032 $ 39,158 $ - $ 530,085 The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2016 (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Floating homes Other consumer Commercial business Unallocated Total Allowance for loan losses: Individually evaluated for impairment $ 536 $ 121 $ 24 $ 35 $ 59 $ - $ 65 $ 23 $ - $ 863 Collectively evaluated for impairment 1,006 257 1,120 424 109 132 47 152 712 3,959 Ending balance $ 1,542 $ 378 $ 1,144 $ 459 $ 168 $ 132 $ 112 $ 175 $ 712 $ 4,822 Loans receivable: Individually evaluated for impairment $ 4,749 $ 832 $ 1,582 $ 83 $ 312 $ - $ 62 $ 616 $ - $ 8,236 Collectively evaluated for impairment 147,637 26,939 179,422 70,832 15,182 23,996 3,870 25,715 - 493,593 Ending balance $ 152,386 $ 27,771 $ 181,004 $ 70,915 $ 15,494 $ 23,996 $ 3,932 $ 26,331 $ - $ 501,829 The following table summarizes the activity in the allowance for loan losses for the three months ended September 30, 2017 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One- to four- family $ 1,302 $ - $ - $ (51 ) $ 1,251 Home equity 431 (89 ) 1 8 351 Commercial and multifamily 1,153 - - 32 1,185 Construction and land 352 - - 7 359 Manufactured homes 178 (7 ) - 9 180 Floating homes 146 - - 8 154 Other consumer 98 (1 ) 2 (1 ) 98 Commercial business 364 - - 143 507 Unallocated 811 - - 95 906 Total $ 4,835 $ (97 ) $ 3 $ 250 $ 4,991 The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2017 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One- to four- family $ 1,542 $ - $ - $ (291 ) $ 1,251 Home equity 378 (89 ) 30 32 351 Commercial and multifamily 1,144 (24 ) 1 64 1,185 Construction and land 459 - - (100 ) 359 Manufactured homes 168 (13 ) 3 22 180 Floating homes 132 - - 22 154 Other consumer 112 (8 ) 19 (25 ) 98 Commercial business 175 - - 332 507 Unallocated 712 - - 194 906 Total $ 4,822 $ (134 ) $ 53 $ 250 $ 4,991 The following table summarizes the activity in the allowance for loan losses for the three months ended September 30, 2016 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One- to four- family $ 1,713 $ - $ - $ (55 ) $ 1,658 Home equity 501 (14 ) 10 (73 ) 424 Commercial and multifamily 1,377 - - (17 ) 1,360 Construction and land 388 - 18 (33 ) 373 Manufactured homes 189 - 2 (14 ) 177 Floating homes 132 - - - 132 Other consumer 89 (10 ) 15 (28 ) 66 Commercial business 171 - - 10 181 Unallocated 278 - - 210 488 Total $ 4,838 $ (24 ) $ 45 $ - $ 4,859 The following table summarizes the activity in the allowance for loan losses for the nine months ended September 30, 2016 (in thousands): Beginning Allowance Charge-offs Recoveries Provision Ending Allowance One- to four- family $ 1,839 $ (72 ) $ - $ (109 ) $ 1,658 Home equity 607 (14 ) - (169 ) 424 Commercial and multifamily 921 - - 439 1,360 Construction and land 382 - 18 (27 ) 373 Manufactured homes 301 - 75 (199 ) 177 Floating homes 111 - - 21 132 Other consumer 77 (31 ) 7 13 66 Commercial business 157 (29 ) 19 34 181 Unallocated 241 - - 247 488 Total $ 4,636 $ (146 ) $ 119 $ 250 $ 4,859 Credit Quality Indicators. When we classify problem loans as either substandard or doubtful, we may establish a specific allowance in an amount we deem prudent to address the risk specifically (if the loan is impaired) or we may allow the loss to be addressed in the general allowance (if the loan is not impaired). General allowances represent loss reserves which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem loans. When the Company classifies problem loans as a loss, we charge-off such assets in the period in which they are deemed uncollectible. Assets that do not currently expose us to sufficient risk to warrant classification as substandard, doubtful or loss, but possess identified weaknesses, are classified as either watch or special mention assets. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Federal Deposit Insurance Corporation ("FDIC"), the Bank's federal regulator, and the Washington Department of Financial Institutions ("WDFI"), the Bank's state banking regulator, which can order the establishment of additional loss allowances. Pass rated loans are loans that are not otherwise classified or criticized. The following table represents the internally assigned grades as of September 30, 2017, by type of loan (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Floating homes Other consumer Commercial business Total Grade: Pass $ 151,786 $ 28,321 $ 192,817 $ 54,872 $ 16,711 $ 26,699 $ 4,975 $ 38,396 $ 514,577 Watch 246 - 6,876 - - - - 494 7,616 Special Mention 138 - 360 - - - - 134 632 Substandard 4,701 808 1,358 49 153 - 57 134 7,260 Doubtful - - - - - - - - - Loss - - - - - - - - - Total $ 156,871 $ 29,129 $ 201,411 $ 54,921 $ 16,864 $ 26,699 $ 5,032 $ 39,158 $ 530,085 The following table represents the internally assigned grades as of December 31, 2016, by type of loan (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Floating homes Other consumer Commercial business Total Grade: Pass $ 148,617 $ 26,547 $ 171,678 $ 67,539 $ 15,288 $ 23,996 $ 3,821 $ 25,625 $ 483,111 Watch 998 536 8,105 3,376 78 - 49 326 13,468 Special Mention 139 - - - 30 - - - 169 Substandard 2,632 688 1,221 - 98 - 62 380 5,081 Doubtful - - - - - - - - - Loss - - - - - - - - - Total $ 152,386 $ 27,771 $ 181,004 $ 70,915 $ 15,494 $ 23,996 $ 3,932 $ 26,331 $ 501,829 Nonaccrual and Past Due Loans The following table presents the recorded investment in nonaccrual loans as of September 30, 2017, and December 31, 2016, by type of loan (in thousands): September 30, 2017 December 31, 2016 One- to four- family $ 878 $ 2,169 Home equity 700 536 Commercial and multifamily 206 218 Construction and land 49 - Manufactured homes 133 72 Commercial business 134 149 Total $ 2,100 $ 3,144 The following table represents the aging of the recorded investment in past due loans as of September 30, 2017, by type of loan (in thousands): 30-59 Days Past Due 60-89 Days Past Due 90 Days and Greater Past Due 90 Days and Greater Past Due and Still Accruing Total Past Due Current Total Loans One- to four- family $ 64 $ 1,723 $ 705 $ - $ 2,492 $ 154,379 $ 156,871 Home equity 346 28 607 - 981 28,148 29,129 Commercial and multifamily 206 - - - 206 201,205 201,411 Construction and land 43 49 49 - 141 54,780 54,921 Manufactured homes 23 103 107 - 233 16,631 16,864 Floating homes - - - - - 26,699 26,699 Other consumer 49 6 - - 55 4,977 5,032 Commercial business 409 47 - - 456 38,702 39,158 Total $ 1,140 $ 1,956 $ 1,468 $ - $ 4,564 $ 525,521 $ 530,085 The following table represents the aging of the recorded investment in past due loans as of December 31, 2016, by type of loan (in thousands): 30-59 Days Past Due 60-89 Days Past Due 90 Days and Greater Past Due 90 Days and Greater Past Due and Still Accruing Total Past Due Current Total Loans One- to four- family $ 2,476 $ 161 $ 1,787 $ - $ 4,424 $ 147,962 $ 152,386 Home equity 460 - 494 - 954 26,817 27,771 Commercial and multifamily - - - - - 181,004 181,004 Construction and land 440 - - - 440 70,475 70,915 Manufactured homes 321 28 62 - 411 15,083 15,494 Floating homes - - - - - 23,996 23,996 Other consumer 26 1 - - 27 3,905 3,932 Commercial business 149 - - - 149 26,182 26,331 Total $ 3,872 $ 190 $ 2,343 $ - $ 6,405 $ 495,424 $ 501,829 Nonperforming Loans. The following table represents the credit risk profile of our loan portfolio based on payment activity as of September 30, 2017, by type of loan (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Floating homes Other consumer Commercial business Total Performing $ 154,679 $ 28,429 $ 201,205 $ 54,872 $ 16,731 $ 26,699 $ 5,032 $ 38,935 $ 526,582 Nonperforming 2,192 700 206 49 133 - - 223 3,503 Total $ 156,871 $ 29,129 $ 201,411 $ 54,921 $ 16,864 $ 26,699 $ 5,032 $ 39,158 $ 530,085 The following table represents the credit risk profile of our loan portfolio based on payment activity as of December 31, 2016, by type of loan (in thousands): One- to four- family Home equity Commercial and multifamily Construction and land Manufactured homes Floating homes Other consumer Commercial business Total Performing $ 150,170 $ 27,218 $ 180,786 $ 70,915 $ 15,374 $ 23,996 $ 3,932 $ 26,089 $ 498,480 Nonperforming 2,216 553 218 - 120 - - 242 3,349 Total $ 152,386 $ 27,771 $ 181,004 $ 70,915 $ 15,494 $ 23,996 $ 3,932 $ 26,331 $ 501,829 Impaired Loans. Impaired loans at September 30, 2017 and December 31, 2016, by type of loan were as follows (in thousands): September 30, 2017 Recorded Investment Unpaid Principal Balance Without Allowance With Allowance Total Recorded Investment Related Allowance One- to four- family $ 6,971 $ 3,403 $ 3,261 $ 6,664 $ 377 Home equity 1,125 487 520 1,007 168 Commercial and multifamily 1,737 1,717 - 1,717 - Construction and land 99 58 41 99 32 Manufactured homes 331 133 176 309 70 Other consumer 57 - 57 57 57 Commercial business 371 - 357 357 276 Total $ 10,691 $ 5,798 $ 4,412 $ 10,210 $ 980 December 31, 2016 Recorded Investment Unpaid Principal Balance Without Allowance With Allowance Total Recorded Investment Related Allowance One- to four- family $ 5,010 $ 2,454 $ 2,295 $ 4,749 $ 536 Home equity 913 446 386 832 121 Commercial and multifamily 1,582 1,221 361 1,582 24 Construction and land 83 - 83 83 35 Manufactured homes 326 91 221 312 59 Other consumer 62 - 62 62 65 Commercial business 616 143 473 616 23 Total $ 8,592 $ 4,355 $ 3,881 $ 8,236 $ 863 Income on impaired loans for the three and nine months ended September 30, 2017 and December 31, 2016, by type of loan were as follows (in thousands): Three Months Ended September 30, 2017 Three Months Ended September 30, 2016 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized One- to four- family $ 6,603 $ 117 $ 5,445 $ 58 Home equity 1,008 10 968 4 Commercial and multifamily 1,732 24 4,365 19 Construction and land 114 (1 ) 86 1 Manufactured homes 306 9 383 6 Other consumer 58 1 24 - Commercial business 348 5 640 9 Total $ 10,169 $ 165 $ 11,911 $ 97 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized One- to four- family $ 5,718 $ 269 $ 5,533 $ 197 Home equity 921 30 944 31 Commercial and multifamily 1,652 72 3,902 152 Construction and land 91 2 88 3 Manufactured homes 311 19 377 23 Other consumer 60 3 20 2 Commercial business 487 16 474 27 Total $ 9,240 $ 411 $ 11,338 $ 435 Forgone interest on nonaccrual loans was $12,000 and $95,000 for the nine months ended September 30, 2017 and 2016, respectively. There were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual or impaired at September 30, 2017 or December 31, 2016. Troubled debt restructurings. Rate Modification Term Modification Payment Modification Combination Modification There was one $1.3 million one- to four- family residential combination loan modified as a TDR during the nine months ended September 30, 2017. The following TDR loans paid off during the first nine months of 2017: a $125,000 one- to four- family residential loan, a $14,000 manufactured home loan, one $86,000 home equity loan, a $27,000 land loan, and a $359,000 commercial/multifamily loan. There were no new TDRs during the nine months ended September 30, 2016. There were no post-modification changes for the unpaid principal balance in loans, net of partial charge-offs, that were recorded as a result of the TDRs for the nine months ended September 30, 2017 and 2016. There were no TDRs for which there was a payment default within the first 12 months of modification during the nine months ended September 30, 2017 or 2016. The Company had no commitments to extend additional credit to borrowers owing receivables whose terms have been modified in TDRs. All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the allowance for loan losses. |